Banking Law Flashcards
What can banks do with the funds they gain? What are the rules surrounding this?
Banks are able to lend the funds between eachother using LIBOR (London inter-bank lending rate)
Retail banks make a profit by balancing the interest they pay out with the interest they receive on mortgages etc.
What happens if a bank goes insolvent?
Account holders are ranked as unsecured creditors so would only receive pennies in the pound.
This is why there are bank runs when banks look like collapsing (Northern Rock).
The FSC will insure account holders up to £75,000 (£150,000 for joint accounts).
What might banks do exceptionally?
Hold money on trust for fund managers - a trustee/beneficiary relationship.
Why is LIBOR important?
Some $300tr of contracts reference LIBOR.
Barclays was fined £290mn for fixing LIBOR rates.
LIBOR is now calculated by ICE and regulated by the FCA.
What is the most important term surrounding the bank-account holder relationship?
Tournier - Confidentiality - banks cannot divulge any customer information, not even on past accounts.
Norwich Pharmacal - banks can be ordered by court to provide information on the accounts of fraudsters.
Turner v RBS - customers can expressly/impliedly waive confidentiality.
In syndicated loans, banks can waive their right to confidentiality by assigning their loans to other financial institutions.
Which two recent acts help keep banks in check?
Proceeds of Crime Act 2009 - guards against money-laundering.
Payment Services Regulations 2009 - banks must explain and remedy unauthorised transactions.
Mann’s State Theory of Money 1:
- All chattels
Mann’s State Theory of Money 2:
2: Issued by the authority of the law.
Mann’s State Theory of Money 3:
3: Denominated with reference to a unit of account.
Mann’s State Theory of Money 4:
4: Meant to serve as a universal means of exchange.
Mann’s State Theory of Money 5:
5: In the state of issue.
What two other theories of money might be more useful?
Social Theory of Money - money is what users say and make of it i.e. Bitcoin.
Commodity Theory of Money - forms of money (old/commemorative coins) can be sold on as a commodity.
Does Mann’s Theory still hold weigh?
Not really, bank money certainly is not a chattel.
New forms of currency can be used across borders and issued by bodies other than law.
Notes and coins represent a claim against the Bank of England - they are promissory notes.
How are physical money and bank money similar?
Goode:
1. Both represent good title to the money.
- The transfer of both must be unconditional to achieve payment.
- Both forms of payment are final.
* Both settle monetary obligations with identical legal effect.
Fraudulent Payments?
These do not count as theft following R v Preddy.
Is e-money as good as money?
Yes according to Goode, it resembles payment by way of funds transfer.
- The retailer receives immediate credit.
- The transfer is unconditional and final.
- It can be accepted without reference to the creditworthiness of the holder.
Why is fintech money important?
BlockChain can replace the clearing system.
Mobile payment systems give people in LEDCs with poor bank branch access/coverage to make use of money in new ways.
What is the importance of payment? Where has the case law come from and what has been problematic?
Miller - nothing kills financial markets faster than not knowing when you are going to be paid.
Charterhires in shipping law have been important due to their volatility and the prevalence of bad bargains.
Bamford - Libyan Arab Foreign Bank - the current clearing system is susceptible to interruption - could be changed using BlockChain
Discuss the date of payment term.
Date of payment is an innominate term, not a condition,
Following Spar Shipping,
And The Brimnes,
Rejecting The Astra.
Why isn’t payment date a condition? How can parties get around this?
There would be too many bad faith breaches.
Inserting a ‘time is of the essence clause’ (or termination clause) can allow parties to terminate for breach of this term.
What other cases are important for payment?
The Chikuma - payment must be unconditional i.e. the funds must be accessible on the date without penalty or incumbrance.
The Laconia - banks cannot waive late payment, even if the payment date is a non-banking day i.e. Sunday.
What options are available for managing risk in international contracts?
- Placing a charge over the goods.
- Liquidated damages for breach.
- Interest on late payment
- Letters of Credit.
Give an introduction to Letters of Credit.
‘The Lifeblood of International Commerce’ - Rix J in Czarnikow-Rionda.
An irrevocable arrangement which constitutes a definite undertaking of the issuing bank to honour a complying presentation of documents - UCP 600 (governing rules).
An independent payment obligation separate from the underlying contract.
Incredibly useful for where there is mutual suspicion between parties which have not dealt with eachother before.
What documents might be stipulated?
- Certificates of authenticity.
- Insurance certificates/guarantees.
- Bills of lading.
